Lower prices may not be enough to let SMIC compete. Production quality and consistency are also important to customers; as a newcomer, the Shanghai company has yet to build its track record.
SMIC is deferring its share sale at a time when stocks of its Taiwanese rivals have been rising: TSMC shares have gained 55 percent this year, while those of smaller rivals UMC are up 29 percent.
TSMC shares have rebounded 85 percent from their October low, a slump caused partly by concerns that it would lose business to low-cost Chinese suppliers.
SMIC also faces new rivals in China such as Grace Semiconductor Manufacturing Corp (宏力半導體), a company founded by the son of former Chinese president Jiang Zemin (江澤民).
SMIC started production in the fourth quarter of 2001 with startup capital of US$1.5 billion, raised from investors including Goldman, Sachs & Co, Hambrecht & Quist Inc and Walden International Investment Group.
The company had a loss of HK$120.9 million (US$16 million) in the year to Dec. 31, according to Hong Kong-listed Shanghai Industrial Holdings Ltd, the chipmaker's biggest shareholder with a 17 percent stake.
Profitability may be affected by its focus on older technology. The company has bought equipment from Singapore's Chartered Semiconductor Manufacturing Ltd (特許), the world's No. 3 made-to-order supplier. Chartered, which uses less advanced equipment than its Taiwanese rivals, expects to post its 10th consecutive quarterly loss in the second quarter this year.
SMIC also produces memory chips for Germany's Infineon, Japan's Fujitsu Ltd and Toshiba, a business that has been unprofitable for most manufacturers since the spot price of benchmark memory chips fell below US$4 earlier this year.
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